Brokers Fill Valuable Role for Some Pallet Companies
Pallet Brokers: Pallet brokers, wholesalers, and distributors serve a valuable function for some pallet manufacturers and recyclers.
By Rick LeBlanc
Date Posted: 2/1/1999
Pallet brokers. Pallet distributors. Pallet wholesalers. Companies quietly working the middle ground to connect pallet users to pallet suppliers may not agree totally on the best word to describe the services they provide, but the importance of these businesses to the pallet industry nevertheless is being more widely recognized.
They have the capability to offer local, regional, and in some cases national pallet customers a single source solution for the complete range of their pallet and crate requirements.
For pallet manufacturers, this sector provides a highly professional sales force with no fixed costs that is paid only for the business it brings, and it generates business from a broader market area.
Dictionary definitions are inconclusive. Funk & Wagnalls describes a broker as one who buys and sells for another on commission or who arranges for the negotiation of contracts. While pallet "brokers" arrange the buying and selling of pallets, they normally purchase them for resale to specific accounts rather than just take a commission; by this definition, then, they could not be purely called brokers. A wholesaler, on the other hand, is deemed to be one who sells goods in large bulk or quantity, especially for resale. This description, however, fails to capture the essence of matching up pallet mill capability with pallet user demand, which is a core ingredient of the pallet industry middle-man function. The definition of distributor has a similar failing: one who distributes or sells merchandise, usually of a specific type or category.
"The names are very much a nuance," said Lee Sherman, president of Timber Industries, a pallet wholesaler based in Towson, Md. with offices in Peachtree City, Ga. and Saratoga Springs, N.Y. Established in 1977, Timber Industries is the successor to the Quincy L. Morrow Company, a manufacturer of wood pallets since 1933.
"They are interchangeable between broker and wholesaler," he said. "There is no difference. For some reason, the pallet industry tends to call the wholesalers brokers where the lumber industry uses the term wholesaler. But they are very much interchangeable, at least in my context."
"Theres no difference from what Ive seen, and Ive been in it for 26 years," agreed Joe Smith, president of H&S Forest Products, a broker based in Columbus, Oh., with a branch office in Collierville, Tenn. Now with over $20 million in sales annually, H&S has been in business since 1990.
Part of the difficulty in "branding" the service these type of companies provide is that some pallet mills have been treated poorly by the middle-man. "A few mills got burnt, and maybe they werent dealing with reputable wholesalers," said Joe. "Theyve been stung. They dont like the terminology wholesaler, so maybe the term broker is better."
Other middle-men say that they also like the term broker as well, but there is no clear consensus. Some prefer to be called wholesalers.
Adian Industrial Sales is one of the longest serving brokers in the industry, dating back to the companys inception over 36 years ago. "I guess broker is what we consider ourselves," said Worden Teasdale, president of the Toronto-based company. "Were the middle-man between the manufacturer and our customer. We broker a deal. Our company has been a broker since it first started in 1962."
Most of Adians customers are in Ontario and the "border states" although it has single customers as far away as Ohio and Virginia.
"The broker is a term that is more comfortable for the end-users," said Tom Losinski, president of Mid-Central Pallet & Supply in Wavzata, Minn., a pallet broker for the last 15 years and a pallet salesman for six years prior to that. "They seem to identify with that term rather than the non-stocking distributor, which is what I consider myself to be."
While Tom believes that some brokers have tarnished their image over the years, he is not sure whether the poor image relates to brokers specifically in the pallet industry or to brokers in general. However, he believes the image of broker is now changing in a positive way.
"Most suppliers that I come in contact with in our trading area do either new or used or crating, but they dont do the whole range," Tom said. "I think that it has been the demand from the end-user that has determined what we do for them. Its the number of vendors they are dealing with, and the one-stop shopping, that sort of thing."
Like other brokers or distributors, Tom believes they offer advantages in terms of a wide product mix and broad geographic capability benefits that increasingly are attractive to pallet users. By working with several pallet plants, a broker can meet the needs of customers that have multiple locations as well as those of customers with a range of pallet and crating requirements. This is especially attractive to some pallet users who want to reduce their list of vendors.
"In some cases the customer requires more than a bare bones pallet," Worden pointed out. "He may have a number of different packaging items he requires and we can assist him with. He may need pallets and boxes maybe plastic pallets or plywood, softwood, hardwood or whatever." Adian Industrial has one customer that it supplies with various items from three different pallet companies, he said.
Brokers can effectively match up different locations of a pallet user with appropriate local pallet plants. "An account may have a plant in Columbus and another one in Memphis," said Joe. "A customer can use us to both locations or 5 locations or 10 locations."
Successful brokers like to establish an ongoing relationship between a pallet mill and a pallet user location so that the pallet plant can become familiar with the customers pallet needs.
Customers may also benefit from the professional approach to sales that large brokers can provide. Adian, like others, provides customers with computer-assisted pallet design, typically PDS (Pallet Design System), as well as a depth of materials handling, pallet, and customer service experience.
"We supply PDS, we supply repair services, and used pallets," Worden said. "They can get it all through dealing with us."
"From a customer standpoint, we offer, I believe, great peace of mind," Lee said. "We are there for them (if any problems arise). If one of our mills burns down, for example, we replace it. We will fit into that equation."
Pallet brokers are most popular with pallet plants without a dedicated sales force or with a limited sales staff. "The advantages for manufacturers dealing with a broker varies very much from manufacturer to manufacturer," Lee said. "Some manufacturers do not have a sales force, so you tend to concentrate through brokers." If a pallet company does have a direct sales force, the broker endeavors not to compete with a direct account. "Were not in the business to muddy the water. We are in the business of giving our pallet mills business, not taking it away."
A broker can give a local pallet company some of the advantages of a national company by providing it with accounts farther afield as well as matching it up with local branches of multi-location pallet users. "I think the main thing we bring to the table is being able to secure customers that are probably out of their normal shipping area," said Joe. "And we do everything. We send them a print of the pallet to be built. We use a CAD (computer-assisted design) system, so there is no question about how many boards, how many nails, how many stringers, and the size of the stringers, and (as a result) there is no problem."
One of the key benefits for pallet mills, the brokers emphasized, is timely payment according to negotiated terms. "We pay real quick, so they have no receivables as such, other than about five days," said Lee. "We have the responsibility of collections. So if one of our customers files a Chapter 11, thats our responsibility. Unfortunately, it does happen to us. Our thought process is that they are our customers, so if there is a risk, the risk has to be ours." Prompt payment also allows pallet plants to effectively plan their lumber purchases from sawmills.
As for which broker a pallet operation should select, Tom cautioned that pallet producers should make themselves aware of a brokers background and track record. He suggested learning about the broker, his areas of expertise, and his depth of knowledge not only in pallets but also in the sawmill industry and material handling. "You have to bring a broad base of education and experience to the table," he said.
Another thing a pallet mill should ask, according to Joe, is if a broker can sell all types of pallets so that the plant can fully utilize its lumber. "There are going to be some mills that do GMA, but thats okay if youve got the lumber to do that," he said. "But there are a lot of mills that are getting cants from 8 feet to 14 feet. And you need 36 squares and 42 squares and 48-by-40 and 48 squares to utilize all their lumber. Thats what we try to do. It goes back to the old way, but thats the way we like to sell to help out the mill."
Brokers like Lee emphasize that their success is linked to establishing long-term relationships between themselves, pallet suppliers and pallet customers. Others agree. "Weve been doing business with some mills for over 20 years," Joe pointed out. "There is a trust and a loyalty factor that I dont think you can put a price on, really."
In a business environment that displays an increasing trend toward "single stop" pallet procurement at the corporate level and the need for broader geographic coverage, such as that offered by national companies, pallet brokers believe they provide locally-owned pallet companies a way to keep pace in a changing market.
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